Money Myths and the Importance of Thinking for Yourself

When I sat down to write Your Money: The Missing Manual, I knew I wanted to start with a chapter on happiness. (Well, to be fair, I was going to conclude the book with this chapter; my editor suggested moving it to the beginning, which was a stroke of genius.) In particular, I wanted to make the point that money doesn’t buy happiness. Because we all know that’s true, right?

Well, not so much, as it turns out.

Can Money Buy Happiness?
As I wrote the chapter, I found that I had trouble locating data to support my hypothesis. There were plenty of people (including me) who loudly proclaimed that money and happiness were unrelated, and their arguments were persuasive, but none of these folks ever offered numbers to support their case.

In fact, the more I read, the more I realized they were wrong. And so was I. The numbers actually show the opposite. Money does buy happiness; researchers have found a strong correlation between increased wealth and increased contentment. In their book Happiness, Ed Diener and Robert-Biswas Diener write: “Rich people and nations are happier than their poor counterparts; don’t let anyone tell you differently.”

But the authors don’t just make the claim — Diener and his son had the numbers to back up their position. Though it’s a widely-held belief, it’s a myth that happiness and money are unrelated.

Sometimes, as in the case of this money/happiness stuff, money myths are just plain wrong. Other times they sprout from a grain of truth.

Note: Here’s the thing: Though the correlation between money and happiness is strong, except for when it comes to boosting people from poverty, increased wealth has only a small impact on well-being. To put it another way, more money will make you happier, but unless you’re poor, it won’t make you much happier.

Do People Spend More When Using Credit?
Financial guru Dave Ramsey often cites a Dun and Bradstreet study that purportedly reveals people spend more with credit than with cash. I’d always accepted his claim as true, and hadn’t bothered to double-check it. But when I was researching the credit chapter for my book, I had to do more than just take things on faith. I had to find actual sources.

Nobody I know has been able to track down this mythical Dun and Bradstreet study. Even Dun and Bradstreet themselves have been unable to locate it. GRS reader Nicole (with the assistance of her trusty librarian Wendi) contacted the company and received this response: “After doing some research with D&B, it turns out that someone made up the statement, and also made up the part where D&B actually said that.”

In other words, the study doesn’t exist.

So why do Dave Ramsey and a host of others cite it? Who knows? It’s tough to trace the origin of urban legends, but that didn’t stopped Nicole and Wendi from digging further. They kept searching for the source of the D&B myth. Eventually, they succeeded.

Turns out, this “fact” doesn’t come from a study at all. Instead, it’s from a short (739 word) article in the March/April 1993 issue (vol42, no2) of D&B Reports (which is no longer published). The article, written by Robert J. Klein, a founding editor of Money magazine, isn’t available on the web, but I was recently able to read a copy.

It doesn’t say what people (including Dave Ramsey) claim it says. Here’s an excerpt:

Well-run businesses borrow money to finance plant, equipment and research. They do not borrow to pay operating expenses. Families should do the same. They should borrow to buy a house to live in, a washer and dryer to keep house more efficiently, a car for transportation to work, a college education for the kids. They should borrow to refinance existing debts at lower rates. They may even borrow to start or expand a family business. On principal, though, they should never borrow to pay for living expenses.

Sure, the article advocates against overuse of credit, but it doesn’t say anything about people spending more with credit than without.

My point isn’t that Dave Ramsey is wrong about this idea. My point is that he’s citing a bogus study, and then hundreds (or thousands) of others are subsequently accepting what he says as gospel. My point is this: It always pays to question what you hear, and to do your own research. (You should even question me. I do my best to provide accurate information, but I’m only human.)

So What?
Why care about this stuff? Why bother to fact-check seemingly harmless claims about money? For some people, it may not matter. But as I try to build a unified financial philosophy, it’s important to know that I’m basing my beliefs on reality, and not on a bunch of conventional wisdom. I’m learning to question assumptions that I’ve held for a long time. Not all of them are correct.

For example, like most Americans, I used to believe that real estate always increased in value. As we’ve seen over the past five years, however, that’s just not the case. (In fact, over the long term, both gold and real estate are relatively poor investments, barely offering any return above inflation.)

I recently polled my followers on Twitter (at both the @jdroth and @getrichslowly accounts) for other examples of money myths that smart people ought to question. Here are some of the more notable responses:

Several readers don’t like the notion that “debt is a tool” or that “you need credit”. You can live in a modern world without credit, even though plenty of folks will try to convince you it’s impossible.

@ericabiz said: “Worst one: When people think that being poor is somehow virtuous, and rich = evil or taking advantage of others. It’s pervasive.” @mile73 said something similar: “If someone has ‘a lot’ of money, it couldn’t be because they worked hard to get it. It must be because they lucked into it.” These myths are most succinctly stated by @budgetsaresexy, who wrote that he dislikes the idea that “Money is for greedy people.” I agree. It’s not wrong to be rich, folks. Money isn’t a bad thing.

On a related note, many readers complained about the oft-cited Biblical quote, “Money is the root of all evil.” They pointed out that it’s the love of money that’s considered the root of all evil.

@crunchysue thinks it’s a myth that “You can plan on your salary increasing throughout your lifetime.” This highlights how statistics can be deceiving. In general, salaries as a whole will probably increase over time. But that doesn’t mean your salary will always increase. It’s important to budget on what you actually earn, and not what you hope to earn in the future.

@mile73 doesn’t like when people say, “There’s no point in saving. You could get sick and lose it all.” This one bugs me, too. It’s the whole “you can’t take it with you” mentality. Just because you might get sick, and just because you can’t take your wealth with you when you die, this doesn’t mean you shouldn’t save. Balance, people, balance!

@extremejacob doesn’t like the myth that frugal is the same as cheap. He also doesn’t like that most people measure standard of living in terms of spending and consumption.

@chicagoelevated wrote that she’s fed up with the idea that if you do what you love, the money will follow. She’s pursuing a career in something she’s passionate about, but she’s seen first hand that hard work isn’t always profitable. (Still, I think it’s also bad to put up with a job you hate just to get a fat paycheck.)

@creditgoddess wrote: ” I don’t like: ‘A bad credit rating stays with you for life.’ Sure, if you don’t change habits, but it will improve if you work at it.”

Several folks hate shopping “myths”. @ambermae hates, “The more you buy, the more you save.” @moneyhighway agrees, as does @weathershenker who notes that if a sign says “Save 15%”, you are spending 85%: “Sales can be good, but if you truly want to save, don’t spend!” Great advice.

A couple of other folks dropped me notes by e-mail. For example, Claire wrote:

When I was in college, I found out what a bunch of bull “You’ll appreciate it more if you pay for it yourself” was. I was fortunate to not have to take out loans, but I saw close friends struggle with paying for tuition since they had no support. We all valued our education equally. I didn’t screw around & party and waste my opportunity at college; neither did my friends.

Think For Yourself
This has been a long post to make a simple point: Don’t just accept conventional wisdom, and don’t blindly heed the advice of financial “experts”. Listen to this stuff, sure, and consider it. But think for yourself. Do your own research. When you hear somebody make a claim — even if it’s somebody you trust — seek independent verification before you make life decisions based on the information.

Do this for blogs (including this one), but also do it for books and magazines. The more you learn, the better you’ll be able to spot errors and fallacies and situations that don’t apply to you. You’ll also find it easier to question sources that you once considered authoritative.

Remember: Nobody cares more about your money than you do. If you don’t take the time to double-check the financial advice you receive (in person, in books, and in blogs), then there’s a good chance you’ll end up in financial trouble. Be smart, and look out for yourself.

What do you think of the money myths I’ve mentioned here? Are they myths? What myths bug you the most? Has a money myth ever led you into financial trouble? (I suspect that quite a few GRS readers have been hurt by the “your home will always increase in value” myth.) And, most of all, how do you learn to separate fact from fiction?

GRS is committed to helping our readers save and achieve their financial goals. Savings interest rates may be low, but that is all the more reason to shop for the best rate. Find the highest savings interest rates and CD rates from Synchrony Bank, Ally Bank, and more.

Don't miss out - Subscribe to our newsletter for more articles on personal finance.

Note: This comment is not from J.D., but from a reader named Brian Z. He couldn’t get it to post, so I’m posting it for him. For some reason, though, WordPress won’t let me use his name, and only displays my name.

First I want to point out that the author, hopefully out of his own ignorance and horrid researching skills, has misrepresented Dave Ramsey’s citation of the study/article. I myself have never heard or read anything that Dave has said or wrote where he claimed that it was from a Dun and Bradstreet study. On the contrary, in Dave Ramsey’s 2003 edition of Financial Peace Revisited he references the very article that the author claims he had to be told about by some “mythical” GRS reader and her librarian. If the author had actually Read the book or even just found the spot in chapter 8 of the book where Dave refers to the article and then turned back and looked at the appropriate reference note in the back of the book he would have found the following in the Notes section for chapter eight:

This just proves that for all he talks about fact checking he doesn’t do much of his own.

Second, the excerpt doesn’t prove that the article in question doesn’t say exactly what Dave and others have claimed it does, it just shows that it doesn’t say it in that paragraph. He would have been better off either posting the whole article or not posting anything at all. An excert is meaningless, as it is just that an excert specifically chosen by him because it makes no mention of what Dave and others allude.

Then when he starts using people who follow him on twitter and the like as a polling ground? I’m sorry but that is a biased audience if I ever heard of one. People who want to know what you have to say or are doing; I think that they would be people who would agree with you and think what you think for the most part.

In “The Impact of Credit Cards on Spending: A Field Experiment”, it is interesting that the authors started out to prove that credit cards should be banned altogether. And yet their experiment failed to prove what they were aiming for. So they spent the conclusion giving caveats about how the study results should be treated cautiously.

loading....

Marie

My husband’s grandfather gave him good advice many years ago: Never do what you love for a living. Doing what you love because you have to, not because you want to, will squash the joy you find in it.

loading....

DIY Investor

I believe that money increases happiness up to a point and after that there really is no increase. Economists have found that a bit beyond the point that we satisfy our basic needs additional wealth doesn’t add to our happiness. Real GDP has doubled over the past 20-25 years – we drive bigger cars, live in much bigger houses, have cell phones and powerful PCs and yet economists find that we are no happier in 2010 than in 1990.

loading....

Graham

“Old cars cost more to maintain, so it’s cheaper to regularly upgrade to newer ones” – not necessarily!

Being a bit anal, I’ve kept track of every cent I ever spent on my car. Taking inflation into account, the average annual cost for the second ten years was LESS than the average annual cost for the first ten years. Even now, in its 24th year, keeping my oldie is more cost effective than buying another one.

My experience shows that if you buy something decent, maintain it properly, and drive sensibly (eg. gentle acceleration & braking), you can prove false the myth that older cars are more costly. Of course buying a lemon and mistreating it might lead to a different outcome!

I haven’t paid a cent in car purchase costs for over 20 years, and the money I’ve saved has got me ahead in other ways.

loading....

Joe M

Great post and comments!

My favorite myth is that you shouldn’t pay off your mortgage because you lose the income tax deduction. I have never understood why you should pay the bank a dollar to avoid paying the government a quarter.

@Missy (#73). Good observation. I grew up poor and wanted desperately to have money. In high school I researched careers that would pay well and chose computer science. It’s not my love or my passion, but it has provided a nice life for me and my family.

loading....

Mike Crosby

Looking back, I have been fortunate.

My life has been one lived through impulsiveness and gut feeling.

I would just get up and decide to hitch hike across the country. Then half way across, decide to turn around.

I got into doing jobs that I had to do with my hands, i.e. blue collar, because when I was 16 I put an 8 track system in my car and my Dad didn’t know how to do it.

I got tired living on the east coast and decided to move to the west. College at that time in CA was free. I had a blast. Got a degree because I had the GI Bill.

Got tired of working for other people and started my own business. Never made a lot of money, but I loved my job, (simple appliance, ac repair), and had a satisfactory life.

It’s like I see bad things happen to those around me, but for me life has been good. I certainly don’t see myself as anything special, but I’m thankful.

It’s my opinion that we’re going to see tough times ahead. I hope its not end times that the Bible talks about. But if not, it might be good for us.

loading....

Jenzer

Coming late to the discussion, but I just had to chime in with the other commenters re: the value of a college/university education.

Fifteen years ago this month, I made the decision not to pursue a PhD in social psychology, even though I had been accepted into two programs (loooooong story, and an unpleasant one at that). Several months after I’d made this decision, I came across a book offering practical advice for prospective grad students. The one tidbit I remember from the book: universities do not offer graduate programs because the market is so lucrative for grads once they finish. Rather, it’s to a university’s advantage to have grad students because they provide a pool of cheap teaching labor.

Undergraduate education is similar in this regard. Colleges don’t offer majors and minors in all kinds of fields because students will benefit financially from pursuing them. Rather, enrolled students equal cash flow from tuition, room, and board; cash flow means that the faculty, staff, and administrators can keep their jobs.

To paraphrase bethh’s comment (#64): just because someone will let you buy an education doesn’t mean you can afford it, nor does it mean that it will have value to you. Vern’s quote (#97) was spot on.

loading....

Mike Ramsey

“It always pays to question what you hear, and to do your own research”

This is so true, not just with money issues but anything in life. If enough people repeat something, it becomes a “fact” even if it’s completely wrong.

And with the quick communications on the internet, the problem is just that much worse.

Personally, I don’t think money buys happiness so much as pushes misery out of the way.

loading....

DC Portland

@JD Roth (#58) I sent a message to Robert Biswas-Diener to see if he is interested in an introduction. I’ll let you know if and when I hear something back from him.

loading....

imelda

As usual, JD, another superb post. I try to keep an open mind about your staff writers, but 90% of the time I drop by, the only posts that pull me in are yours.

loading....

Nicole

There’s a balance to doing what you love. In economics we call it compensating differentials. The more you love your job, the less they have to pay you to get you to do it.

I’m not sure that the recommendation is necessarily a myth, but that maybe it should be “do what you love up to some extent so long as you’re willing to make the sacrifices entailed … you could also do what you like if it helps you get a lifestyle you prefer, or even what you hate if it’s for a short enough time and allows to to become financially independent so you can eventually do what you love”

You can be an artist if you are talented and willing to make other sacrifices or have other support — if your view of “enough” is small, if you have family support, if you have a lot of money in the bank creating its own income, if you don’t mind working in whatever situation you can, if you’ve got a different day job. And if you’re from a working class background and deciding between being an artist or working minimum wage jobs… well, might as well do what you love. Not everybody is willing to be a nurse or an accountant, even for more money. You can do what you love, but maybe not as a full-time day job and generally not for a lot of money since a lot of talented people seem to love the same things.

…

I do come from the middle class and do have a very different idea of the value of education than my husband’s working class family. For me, college was always about the consumption value, the coming of age experience, becoming a more cultured person. I went to a small liberal arts college. My major didn’t matter– I would gain critical thinking skills in whatever discipline I enjoyed and quite possibly do something entirely different once I graduated. Turns out I enjoyed some pretty marketable stuff, but it could have easily gone a different path had I chosen linguistics instead of economics as my second major.

When it came to graduate school, I did look at what was marketable– economics made a lot more sense than math in terms of opportunity costs of time, and future employment and salary, given my interests in the intersection between the two, it was an obvious choice which to pursue (economics).

My husband took a different path. His parents decided he was good at math and science and should become an engineer if he didn’t want to be a doctor. He started with an engineering major right away at a big university. In the end, both paths seemed to work for us, and if they haven’t there’s still plenty of time to change.

I’ve never really thought of my future career as being defined by what I majored in in college. And really, even in my phd program there were plenty of people who had majored in things other than economics, but chose to get their training in graduate school instead after working in the real world and developing new interests. It is never too late to switch.

loading....

Paul in cAshburn

@Jan #119:
There are two kinds of gold and silver worth buying for the average person who believes inflation is coming in the next five to ten years.
Jewelry or ornaments that you enjoy is one type, bought because you enjoy them, but the markup on jewelry or ornaments makes them a poor investment choice in most cases because when selling you get only the melt value (unless the item has great artistic value).
The other type of gold and silver worth buying is bullion, bought and sold based on weight and purity.
Check out a website like KITCO and you’ll see there is always a market for bullion.
Some people enjoy rare coins, but unless you enjoy that as a hobby, sticking to bullion bars and coins makes for an easy market for buying and selling. (Buying/selling through a local dealer has the added advantage of immediate possession or divestiture, but check prices online to ensure you’re getting a fair price – and make sure you’re insured for loss or theft, using a safe deposit box for most holdings.)

All that said, a garden is a delight – with food benefits. I totally agree they’re a worthwhile pursuit.

loading....

Magical Pony

I would like to thank those who have commented on the ‘Do what you love’ myth.

For years my aim was to be a professional full-time artist (a painter). This is almost like trying to be a Hollywood actor. I finally saw the light when I realised I was being paid well to be a web content writer (my “day job” that “wasn’t my dream”) and that I really enjoyed it.

Also I read a book called ‘Refuse to Choose’ which changed my life as I realised I do not have just one passion – I have a great many (including music, writing, crocheting). Now I enjoy being able to pursue my hobbies without financial pressure or commercial concerns. It seriously rules!

I’ll also add that I never studied at University so avoided student debt. It never made sense to me to get that much debt.

Instead I worked various jobs including animation (work dried up) but mostly temping doing data entry/reception in offices until I got the opportunity to contract as an intranet editor (having learnt HTML code in my spare time back in 2000). I worked really hard for 3 years learning on the job and that led me to my current role. Still learning as much as I can on-the-job.

loading....

Dr. Frank Bonkowski

DC Portland makes an interesting comment (#57). Moreover, the psychologist Daniel Gilbert has an interesting take on the topic of money and happiness in his provocative book, Stumbling on Happiness. With all the knowledge that exists in the world, he wonders why people still make so many bad decisions or have inaccurate ideas. He suggests two possibilities: a) a lot of the advice that we get from others is bad advice that we foolishly accept, or b) a lot of advice that we receive is good advice that we foolishly reject.

He proposes the notion of “super-replicators,” beliefs that get transmitted from one generation to another independent of whether they are accurate or inaccurate. My colleague Dr. Fred Horowitz calls these “memes” and refers to them as a virus. Gilbert contends that the belief that wealth increases human happiness is a super-replicating false belief. There is much research that supports this assertion. However, there are complicated reasons for propagating this belief. He argues that the production of wealth serves the need of a capitalist economy, which serves the need of a stable society, which “serves as a network for the propagation of delusional beliefs about happiness and wealth.” For more on money and happiness from a midlife perspective, see http://www.happiness-after-midlife.com.

loading....

Jan

@ Missy- you have hit upon what every generation before the boomers knew. My father made a LOT of money. He was really a poet. He sold cars to support his family and their lifestyle.
He probably would have been a published poet if he had done it full time. Instead we lived a great life and he self published work.
I wish that I had really known what the key was 30 years ago. I am great at sales- but went into education. It is a place where “follow your passion and the money will come” is total BS.
Glad you figured it out far younger than me!

Another myth- Pay for a a graduate degree and it will bring more money. Unless you are working for professorship- let the company pay for your next degree! Getting a graduate degree without a profession attached is simply silly these days.

@Paul. We bought silver overseas once- what a waste of money! It is difficult to deal in a commodity unless you know exactly where to sell it to. We decided them- buying gold and silver really only work if you live in a third world country. Most Americans are not interested. Better to grow a garden if things get that rough!

loading....

sarah

I use statistics everyday, studied them in my masters and PhD. And I can tell you that the average person cannot really draw conclusions from “statistics” to the extent that they think they can.

It makes me a little angry that people who have worked their whole lives in one profession and consider themselves experts in that area think that they master my profession with a Wiki article. While the Wiki article is certainly better than no statistics education, its probably best if the average person adopts the view that without credible sources (academic journals not mass media), most of the statistics people throw around are really meaningless because they are completely unsubstantiated.

loading....

Brenda

@ Missy (#73)
You too, eh!??
Your story is the same as mine. People kept telling me to “Do what I love”, so I become an art major in college and graduated with a BFA, emphasis Graphic Design, with Honors. Art was always what I did best and loved.

Now, I’m middle-aged and can’t even find work, since there are very few art or graphic design jobs out there, and way WAY too many out of work graphic designers and artists.

“Do what you love and money will follow” is STUPID advice. I agree with you about “decide what your values are and make them important.” One needs to decide if they really don’t value a roof over their head or comfort. For someone that’s ok with crashing on a friend’s couch their whole life and living a nomadic life, then “Doing what they love” is a definite option.

But if you value a roof over your head, steady income, and security, it would be far wiser to get into a career that’s stable, has a lot of jobs, and pays a living wage.

So here I am, middle-aged, and going back to college this fall for a real degree (accounting). Because I’m tired of living in poverty, because I got horrible advice of “Do what you love and the money will follow” as a child.

loading....

Brenda

“In fact, the more I read, the more I realized they were wrong. And so was I. The numbers actually show the opposite. Money does buy happiness; researchers have found a strong correlation between increased wealth and increased contentment.”

I know I’ve commented several times before that you were wrong when you tried to say that “Money doesn’t buy happiness”. I’m glad you FINALLY saw the light!

I hate it when people say that “money doesn’t buy happiness”. *Usually* (not always, there are exceptions, but USUALLY), the people who say it are well-off and have plenty of money to take care of all their basic needs and then some.

However, everyone I know, including myself, who are poor, KNOW that money can buy happiness. Of course it can! People usually are NOT happy when they’re fretting over trying to keep a roof over their heads and food in their bellies. People are usually NOT happy when their dreams never become realized because they are too poor to achieve them. People are usually NOT happy when they can never have a vacation, or do anything fun, because they have to work multiple low-paying jobs just to pay the most basic of rent, food, utilities. If they were paid better, and made more, or had a windfall (and managed the money well), they would be happier. I know I would be. I’m usually very unhappy. Meeting my basic needs is often either stressful (working multiple low-paying jobs) or embarrassing (having to move back in with parents because I’ve failed to make ends meet due to super-low earning power), and I’m usually pretty sad or stressed due to this. I have dreams I know will never happen, because I do not have money.

EDIT: I missed the part in the box where you said that money does have an impact in boosting people from poverty. But I really think the impact is much *bigger* than people give it credit for. For the people who are already well-off, yeah, having more money might have a small impact (since they already have enough money to realize most of their dreams), but it’s still a significant enough impact to make the saying “money can’t buy happiness” a Myth. I’m just glad you’re finally putting that saying in the Myth category. Thank you.

However, (and this is important)…Money cannot buy Joy. Joy is different than happiness. Joy is something on a more spiritual level and doesn’t come from anything material. I think sometimes people confuse happiness and Joy when they’re talking about money (or lack thereof).

loading....

Paul in cAshburn

@#108 Kevin:

The actual statistic (per the Treasury Department), is that the bottom 50% of taxpayers paid only 3.4% of the federal income taxes paid in 2006.

The actual saying is “There’s virtually nothing you cannot buy with gold, even in a crisis.”

If you cannot afford gold, buy silver!

Paper money doesn’t hold up as well in severe crises. 😉

loading....

Paul in cAshburn

@#37 Kent K:
“JD for me one of the biggest myths is that a college education will lead to higher income.”

If you plot two normal distribution curves, overlapping and not mutually exclusive in the middle, one with a $30k median for those without a degree and the other with a $50k median for those who have a Bachelors degree, they would overlap, showing that the average person with a college degree is likely to make more than the average person without one, but there is a lot of overlap. Sigh. Where’s a whiteboard when you need one?

You remember normal distribution curves… like looking at a dromedary camel’s hump from the side, with most incomes clumped in the middle of the hump. Then think of two normal distribution curves – like a Bactrian camel’s two humps :), the one on the left being the high school diploma-holder, and the one on the right being the Bachelors degree-holder.

They show that in 2006, males 30 years old with a high school diploma had a median income of $30k versus $50k with a Bachelor’s degree.

For Conspiracy Theorists: Does the Education Department have bias in their numbers because they’re in the business of selling education’s benefits?

loading....

Sarah L

Maybe I’m a bad person for this, but I got a little laugh out of the fact that Dave Ramsey quoted something that doesn’t even exist!! I’ve read a book of his, and wasn’t impressed at all, and honestly don’t understand why so many people think he’s the best person ever when it comes to finances. I’d rather learn from real people, like you. How awesome you did al that research and can put a stop to who knows how many decades of that false information being spread around.

But I do think we need to be careful when correlating money and happiness. As science teachers are fond of saying, “correlation does not equal causation” (http://en.wikipedia.org/wiki/Correlation_does_not_imply_causation). My son, upon returning from a mission trip to Kenya, said the thing he was most struck by was a widow with 7 children and little else. She was as joyful and content, if not more so, than any American he knew (which included his mother and me… how convicting!). Perhaps one could try to argue that if she had money, she’d be even happier. But I doubt it. She had a different source of hope and a different set of priorities.

So while I’d rather have money than not, I’d most like to have the level of contentment the widow had… something money didn’t buy.

loading....

Nei9l

@Kevin:

I don’t agree with your example:

“I always shake my head when I see a CNN headline that says something like “47% Oppose Healthcare Reforms.” OK, so then 53% don’t oppose it, right? Why isn’t this a good news story, instead of a bad news story?”

“Don’t oppose” is a passive phrase. You can be in favor of, have no opinion, be unsure, or fail to respond and you “don’t oppose” something.

In your made-up statistics, that 47% is probably the plurality.

That’s not to say you’re not right about people abusing statistics. You’re absolutely right, which is why it always pays to look at the actual source and see what is actually going on.

loading....

Ditto

@SF_UK: Negative equity is not meaningless. It makes it difficult to refinance at better rates. It puts you in danger of a foreclosure if you have a financial emergency. And it locks you into your property, even if you do decide to move later.

I don’t see a house as an investment either, but I sure as heck don’t want to be sitting on negative equity. Nor do I want to spend more money on a house than I have to. We rented through the bubble and I’m glad for it. We didn’t have our own place, but we saved hundreds of thousands of dollars.

loading....

Kevin

@DanT:

“It’s amazing how many times the media will report some statistic, but if you go look up the actual report, it’s significantly different or even entirely opposite!”

That’s a great point, Dan. I always shake my head when I see a CNN headline that says something like “47% Oppose Healthcare Reforms.” OK, so then 53% don’t oppose it, right? Why isn’t this a good news story, instead of a bad news story?

That’s an example of reporting the minority side of a statistic as if it were the majority. But other misuses of statistics are even more sinister. For example, another recent CNN story announced that 45% of Americans think the amount of income tax they pay is fair. But what the story didn’t mention is that 47% of Americans pay no federal income tax at all! So of course they think it’s “fair” – they’re not paying anything! I’d be pretty happy with the system too, if I didn’t have to pay anything at all! Those kinds of statistics-abuse make my blood boil.

According to the book review, the authors studied happiness for two decades and concluded that the cause of happiness is mostly in the genes, but some happiness comes from life circumstances (money is one on the list). Money does make a difference for people making very low salaries, but after a point it really doesn’t add much at all.

loading....

Lori McKinney

Having been a faciliator for DAve Ramsey’s FPU for many years, I have found that his concepts are sound, but not every individual can or maybe even needs to follow them to the letter. Case in point, buying with credit. One of your readers readily says using plastic results in overspending for her. I know others who use those airmiles racked up by using plastic for everything and paying it off at month end. Personality makeup is the difference and it just supports your statement that we must evaluate concepts in terms of our own strengths, weaknesses & character. Not unlike dieting!

Because I have a large family and a single income, I’m just barely in the 15% tax bracket. I sat down with the 401k advisor at work and told him my situation and that I didn’t want to tie up my money for decades in a retirement account if I could avoid it. I asked him if a Roth IRA would be a good idea since my tax rate could only be higher in the future and at least I could withdraw my contributions without penalty in an emergency. Nope, all he could say is “401k”

Well, it seems that the long-term capital gains rate for 2008 through 2010 for people in the 10 and 15% tax brackets was 0%. How is any retirement account better than that?

Wish I had known that two years ago. I could have doubled my money tax free and still had complete control over it!

loading....

Kristine

Awesome, awesome post. This was such an informative article! Thank You!

I wholeheartedly agree with your main idea. “Think for yourself.”

My husband and I invested in some real estate 2 and a half years ago based on an “expert’s” advice. But, we didn’t really know all the ins and outs of the investment. Long story short, we are in the process of unloading the property at a discount.

Lesson learned. Invest first in ourselves. Learn about which investments we want to do because we we like it and we completely understand the investment. Investments are our responsibility regardless if an expert gave his/her advice or not.

loading....

David/yourfinances101

Money can’t buy happiness, but it can make finding it a lot easier.

I disagree with whatever that study is that says we spend more with credit.

As far as I can tell, you spend exactly what you want to spend, its all a matter of discipline. People may be less disciplined with credit, but I think this theory simply provides an excuse for people in debt.

loading....

peggy

Excellent article. I felt motivated to respond.

“Do what you love and the money will follow” is a money myth that irks me to no end. It should be revised to “Do what you love and MAKE the money follow.” You cannot be lazy and expect to make money. With that said, choosing a career or job based on your passions greatly increases your chances that you will earn the money AND be happy. But I’ve also seen the opposite where people use the “do what you love” as an excuse to NOT work. If you dream too much but don’t proactively pursue your dream, then you are going nowhere.

Thank you for this article; I feel like printing and pinning it up on my wall!

loading....

Alex

Being rich might not be bad, but it certainly is if you’re rich at the expense of the 2/3rds of the world that can’t even find $1 each day to live on.

And I’m pretty sure that everyone in the US is guilty of that.

loading....

Bananen

When you use borrowed money you will spend less in the long run because you have to pay interests on your loans.
Lending therefore always leads to less consumption, not more. It’s basic math.

loading....

StackingCash

Tremendous article J.D. Kept me up late reading the great comments by your astute readers.

I think credit is a like drug that most people cannot control or break the addiction. I do believe most people tend to overspend with credit. Why not? Bankruptcy is always an option.

I’m surprised no one mentions how compound interest combined with a mythical rate of return will make you rich. I fell for that money myth along with the buy and hold strategy back in the 90’s and lost my a$$ in that Ponzi scheme everyone calls the stock market. Although I’m tempted to try the dollar cost averaging myth, I think I’ll do what works best for me and just stick what I have left in a savings account.

Again, wonderful article with great reader comments!

loading....

javier | growingrich.net

The biggest myths about money were said by people didn’t have any. No need to believe them.

Money may not make you happy by itself, but it makes you free. And if you feel free your chances of being happy are bigger.

Cheers!

loading....

vern

“The conventional wisdom is that you are unemployable without a college degree. That you are often unemployable with one is something a lot of people spend a lot of money to discover.” Iain Levinson from A Working Stiff’s Manifesto (great book!)

loading....

Holly

@ #50, Frankerson P:
I sold my house in 2003 and lost $60-80,000 in a matter of months (NO JOKE) only to purchase a home in 2004 (trouble w/our new construction not getting its necessary permits and had to buy pre-owned) at the inflated prices. BELIEVE ME, I feel your pain!!!!!! That was my kids’ college funds down the drain.

@ #73, Missy:
I totally agree w/your point; I was an advertising/graphic design major, only to find out that I enjoyed copywriting and there was no degree required for any of it…just a good design sense and a good work ethic. I had no mentors…and, like you, I would’ve listened if I had had any.

To Everyone:
Cash most definitely makes one more cognizant of his/her spending. I went to the ATM to withdraw $400 for some shyster to caulk around our windows and to apply grub control to the lawn. Man, did I hate giving him a STACK of never-ending $20 bills for 45 min. of work! He talked a good game…

Once again, thanks to J.D., Nicole, and to her assistant for sharing your insights.

loading....

Leah

Weighing in on Claire’s statement: I think it all depends on the person. I think we’ve all known college students who slacked off because mommy and daddy were paying. But there are also plenty of college students who are on loans and still slack off.

My parents paid for a lot of things for me. Five years later, I still write my mom regular thank you notes for college tuition. Ten years later, and I am still wearing my retainer nightly (thanks for braces, mom!). I think the only thing I wasn’t super careful about was using gas; I definitely biked/walked more once I had to pay for my own gas.

Still, the point stands that “you’ll appreciate it more if you pay for it” can’t be a blanket statement for all people. I sure appreciated my first laptop (thanks, dad!) just as much as my current one (thanks, overtime). I’ve worked just as hard to keep them both in shape. In my mind, taking care of stuff other people paid for keeps me from having to pay for it myself, so I see no reason to squander those gifts.

loading....

msmississippi

This may be the best PF blog post I’ve ever read. My BF is a 50-year-old musician, and let me tell you, the “do what you love and the money will follow” myth is a hard one to let go of. Clearly, an adjustment of expectations is in order … There’s a good chance he’ll only ever be a great singer in a terrific local band and his reward for his efforts (his life’s work!) is not going to be financial. That’s not to say there aren’t rewards; playing to appreciative audiences & channeling the holy spirit (his description of how it feels) is something few people experience, and he does it every week. But make a living at it? Hope springs eternal, but …

loading....

Nicole

Sorry, chacha.

loading....

chacha1

also, not to be a nit-picky nitwit, but a friend of mine is a figure-skating judge so I’ll just throw in:

axel

not

axle!

loading....

David

money does buy happiness, without money you’d be dead

loading....

Gail

It is an interesting one

I often wonder about good debt, or bad debt when I look at the mess I have managed to get myself into.

It is too simplistic to say all debt is bad but it is blatently naive to suggest it is all good either. I’m not entirely sure that the western world has learned its lesson yet you know. It pays banks for credit to be cheap and we as western consumers pay the rest of the world in export goods with our credit. Money – or credit to be more precise -does make the world go round.

“After doing some research with D&B, it turns out that someone made up the statement”

LOL soooo funny

This is a simple matter of Self-fulfilling prophecy and Dave Ramsey just ran with it

Please folks take all guru advice with a grain of salt and match it to your personal situation

loading....

KS

My pet peeve – I’m quite tired of the “cheap is good” mentality that characterizes a lot of the voluntary simplicity/personal finance groupthink. This has had profound influences on our health, our environment, wages, outsourcing, etc. The book “Cheap: the High Cost of Discount Culture” was a good overview on this subject.

loading....

JESSU

The study on whether wealth brings happiness is a general study that does not rule out basic standard of living. This has been a subject of debate for a long time and one of the arguments is that when one’s standard of living is decent, wealth makes a small difference in happiness. The African Village theory is most common in arguing that if poor people had no knowledge of wealth they would not covet it and be unhappy without it.

loading....

Jen

Hey JD.

I was just browsing through our Safari Book subscription at work and noticed your book on there! How exciting! I figured you already knew this but just in case…

loading....

Honey

I absolutely agree that habits that require little to no skill (drinking a glass of water) and that provide immediately recognizable benefits (not being thirsty, having more energy) are acquired faster than habits that require skill development before they can be practiced (doing a triple axle) and/or that have significant and immediate downsides prior to having any upsides (a month of being really sore and still too fat for your pants before exercise starts to feel good and your clothing fits better). I’d also say that habits that are accompanied by physical/psychological addiction are picked up more quickly and dropped more slowly (if at all) than habits not accompanied by addiction.

So I am not saying anything that even remotely disagrees with how quickly habits are or aren’t picked up. I’m saying that the original comparison was flawed. And it was.

Neither one of those takes 21 days to become habitual, the water takes considerably less and the exercise considerably longer.

I’m not sure that the psychologists who study habit formation actually make that much of a difference. The difference in my previous example would be between doing a triple axle and doing a triple axle automatically without thinking about the mechanics of the procedure.

loading....

JB

@Honey — I do agree that Nicole’s example was a bit off, but the sentiment is rather right. I think she was saying less that you can’t develop habits for skills you don’t already have (you’d have to develop the skill first, but someone interested in saving on groceries can certainly get in the habit of baking bread on the weekends at the same time as learning to bake bread) than she was saying it’s harder to get into more demanding habits (it’s easier to get in the habit of making a sandwich for tomorrow’s lunch than it is to get in the habit of weekly baking sandwich bread, which is actually my current problem).

loading....

kdice

I’ll echo the statements of others that this is a really nice post!

Regarding the money and happiness studies,I think part of the issue in terms of findings is the range in your scale. When we look globally, there is a huge range between the poorest and the richest, and we find correlations between money and happiness.

When we compress the scale down to those in the upper middle class of the U.S. (which is what most of us are considering when we ask if more money will bring us happiness), we have a much smaller range, which because of the way statistics work, is going to make it much harder to find any significant correlation.

If you Google restriction of range and correlation you will see some neat demos of this effect. Anyway, not sure, but I’ve always thought this was at play in the money/happiness research.

loading....

Honey

@ Nicole, #47 – I think there is a huge difference between a habit and a skill, so your example of drinking water v. doing a hard ice-skating move doesn’t work. It might take you years to develop the skill necessary to do a particular ice-skating trick, but getting up every day to practice at 5:30 a.m. is a habit.

But it is worth mentioning, then, that you can’t always develop habits that revolve around skills you do not yet possess. That would be a very valuable realization for a lot of people.

loading....

James

Don’t do what you love. Do what you need to do to enjoy the life that you value. These don’t have to be mutually exclusive but the latter is more important.

loading....

Stephan

Ive done some research myself on the “people spend more with credit than cash” topic and its more than just finances. When people use a credit card in a store, they do not feel an instant loss when paying for the good, as the bill is not due until the end of the month or whenever the statement comes in the mail. This allows people to spend more without really being impacted by the loss of money in any way. With cash, consumers notice the loss instantly as they are giving their hard earned cash to the cashier. This limits their spending, or typically does in average consumers.Preferred Financial Services

loading....

Ely

@ Missy, that’s a brilliant point – Don’t worry so much about the particular subject as the life it makes available. If you love English Lit enough that it’s worth being poor, go for it; otherwise, get an engineering degree and start a book club.

loading....

jim

Thanks for sharing the details about the Dun & Bradstreet study that Ramsey quotes. I’d tried to find that study myself or any references to it and also came up empty. Ramsey should really stop citing that fictitious study.

loading....

JB

@Ingrid — I’m pretty sure banks can cancel the card if they don’t like the color of your shoes, if they were so inclined. Issuers lately have been trying to get rid of less safe accounts — American Express paid people to close voluntarily, but many more weren’t so kind. It’s the same principle behind the should-you-walk-out-on-your-mortgage flamewar…either party can legally break the contract, but it’s usually not a good idea to do so.

loading....

Ingrid

Re: several people on the emergency funds versus high interest debt question

I also agree with you about the psychological factors. This is why debt snowball works for some people while paying down the card with the highest interest rate did not.

I guess, a finance myth is what happens when a principle, helpful under certain conditions, is proclaimed to be the universal and only thing to do. And that’s what I keep hearing about emergency funds versus high-interest debt – “you need to do it”. No, you don’t “need to”; it may or may not be the best strategy for you specifically.

@DonB: I didn’t realize banks could just cancel your credit card when you are fulfilling all the contractual obligations on your side. I am in Canada, so I don’t know if it’s me being naive or whether our laws are somewhat different?

loading....

DonB

@E: I’m with Bartosz. The difference is psychological only. Mathematically, Ingrid is correct. In that position, I would probably do like Ingrid and pay down the debt.

There is perhaps one other factor, liquidity. If your bank lowers your credit or cancels your card when they see you paying the debt off, then you are in a pinch when you have an emergency. If you had created the emergency fund, then you have a cushion.

What Ingrid has to decide, then, is whether it is worth paying for liquidity. If that is worth paying for (in the difference in interest rates), then the emergency fund should be established first.

loading....

Missy

I have to chime in on the “Do what you love” point. I came from a blue-collar background and was the first in my family to go to college, so I considered viable trades (engineering and law) because I KNEW the point was to avoid working the assembly line at the food processing plant. However, some very dear friends and mentors of mine recommended I “do what I love” so I switched from engineering to English Literature.

This was possibly the worst advice I ever received, and I received it from my mentor, my advisor and a former high school teacher. Looking back, I can see that they came from a white collar background and didn’t know what it meant to live on the edge of poverty.

Nonetheless, I took this advice, only to find myself $40K in student loan debt and unemployed a few years later. I had excellent math/computer skills, but found myself working as an engineering intern for half pay because I couldn’t actually be labeled as such (I was the “office” intern).

I find myself now, at 34 years old, returning to school and working a student job as a computer programmer. Here’s the funny thing: I LOVE it. I was so tired of crappy service jobs, that getting my own office with my own computer was almost as good as moving out of my rural town as a teenager. I have a better job, and a better life, than some of the managers I’ve worked with at “English Lit” jobs over the years.

The adage should NOT be “do what you love and the money will follow.” It should be “decide what your values are and make them important.” I had a friend who knew, going in, that she wanted to be wealthy AND she wanted public acknowledgment/status, so she did what it took to become the VP of her current firm. She didn’t focus on the subject; she focused on the life she wanted, and she learned what she needed to along the way.

φιλαργυρια translates to something like “avarice”, and definitely has the component of love in there (“φιλα-” from “φιλος”, meaning love or friendship). So “money is the root of all evil” is right out. You could substantiate “love of money” being the proper translation.

More interesting is “evil” being plural. The most literal translation that makes sense is “all the evil things [in the world]”, but “all kinds of evil” is workable as well (I wouldn’t use that on my Greek homework, but it’s probably more idiomatic). Definitely not just “evil”.

So–definitely not just “money”, and probably not evil as a concept (just everything that is evil).

(Sorry–I’m a close-reading geek.)

(ED: sorry for the lack of diacriticals, but I’m just cutting-and-pasting since I’m at work)

ED: Also, I just realized that “root” doesn’t have a definite article (unlike “avarice” and “evil”), so a literal translation is “a root”. So “A root of all the evils is love of money.” Kinda different from “Money is the root of all evil.”

loading....

brooklyn money

For me the biggest myth is that using a credit card or any kind of debt or leverage is necessarily bad. It can be bad if you don’t have self-control and liquidity that you can tap in case of a call, etc. but it can also be a great way to make your money work for you (i.e. zero percent interest credit cards, buying stocks on margin, etc.)

loading....

DreamChaser57

Phenomenal and thought-provoking post! I generally loathe the mentality that it does not matter what you do in life, in the context of personal finance, because life will throw you an insurmountable curve ball. This mentality is manifested in plenty of money myths that have already been mentioned, like “you can take it with you”, “rich people are evil”, and “more money means just more taxes”. You normally do not here people who are financially secure spouting such rubbish, this typically comes from people who are trying to offer a justification for whey they are not responsible and disciplined and why you should not bother to be either.
Money Myth (#1) You cannot take money with you. No one is foolish enough to think that you can. However, you can leave your offspring in a better financial position. Your legacy does not have to be debt and lack. Even if you do not have children, you can establish a charitable trust and fund the causes that you are passionate about ultimately making the world a better place.
Like J.D., I want a unified personal finance approach one that builds and expands upon ideas that I have encountered in many places, including blogs, books, and colleagues. I like a hybrid of methodologies; I do not fanatically adhere to any particular guru, and mindlessly quote someone all day long, or have to call into their show to get their opinion for major life decisions. Any approach should make you more confident and more independent. You should ultimately be able to synthesize information, and determine what makes the most sense for you. That being said, I think most gurus have their niche-I like Dave Ramsey for the most part, TMMO was great, I appreciated the success stories, also people need to be challenged in this country and around the globe when it comes to their dependency on credit. I even like Kiyosaki’s book Rich Dad, Poor Dad – I like the idea that it should be your mission to create passive income, that’s the whole premise of the book. I don’t necessarily agree with how Kiyosaki thinks you should go about getting it. I never believe or hope to encounter anyone where I agree with them about everything, when I read PF books and blogs – I just hoping to expand by intellectual horizons not become hopelessly dependent on a particular guru and end up following them like a Grateful Dead zealot.

loading....

ebyt

As I’m sure I’ve mentioned before, the whole “money doesn’t buy happiness” thing bugs me. A lot. Probably 95% of my problems would be solved if I had more money. I worry about paying off debt, about bills, about my work contract not being renewed… yadda yadda yadda. Perhaps having more money would bring a different set of worries, but the place I am in life now would be sweeter if I had a bit more dough to play around with.

Of course rich people have problems like the rest of us do – relationships break up, people they care about get sick, and so on. Money can’t usually fix those things, but I can tell you I have never been unhappy over a raise or finding $20 in my pocket. And being rich does not guarantee you’ll be happy, but I know that I work hard in order to get more money to use as a tool towards happiness. Money = freedom. Money can equal long vacations, being choosy about where you work, and so on. The LACK of money is the root of all evil 😉

As far as some people spending more because they have credit cards, I absolutely believe that. That’s how I got myself into such deep trouble in my less disciplined youth! If you don’t have the cash and you don’t have the credit, you just won’t buy the item.

As far as your book goes, J.D. (and I know it’s out so this is kind of a moot point), I don’t know if you should have so much worried about presenting things as facts so much as discussion topics or simply as common wisdom. Definitely interesting to figure out where these things came from, but often these ideas persist because they’re true in many cases.

loading....

Stella

As a former homeowner, I can see both the pros and cons of real estate as an “investment”:

Cons (as I found out from personal experience):

– Condo values are generally tied to other units in the same complex. So if one condo owner forecloses on their property, it’ll pull down the value of the entire complex. Much wiser to buy a single family home.

– It will take at least five years (or more) to break even if you buy a home and turn around and resell (after factoring in closing costs, fees, etc.), so if you don’t know if you want to stay in one place for that long, it’s better to rent.

– Make home improvements to enhance your living experience without expectation that they will add value to your home (although the improvements I made helped my unit “show” better, so they were helpful in that regard…).

– You can buy in a buyer’s market and sell in a seller’s market and still lose money.

Pros:

– Mortgage interest deduction

– If you plan on staying in one place for a significant amount of time, your mortgage payment is usually a fixed monthly amount as opposed to usually rising rental rates.

– It’s not at all possible to recoup any money you spend on rent, but after a number of years you do build equity in paying a mortgage which can be leveraged for financing or recouped via selling your home or eliminating the bulk of your housing expense once you’ve paid your mortgage off.

loading....

Avistew

I think money can buy happiness. The keyword here is BUY.

By spending the money, you can buy things that will make you happy. You can stop your day job and pursue your passion. You can buy something you’ve always really, really wanted but couldn’t have afforded otherwise.

We see a lot of people who are poor and happy, but the phrase “money can buy happiness” isn’t “being rich makes you happy”. That’s totally different. These people might be poor because they’ve spent their money to buy their happiness. Rich people who hoard it all might be miserable because they’re NOT spending their money to buy some happiness.

It’s not a direct correlation. It’s not “more money = you’re happy”. But with more money, you have more options to make choices that will bring you happiness. I think that’s really the way it should be interpreted.

In a way, refusing a good-paying job offer and instead working a lower-paying job that fulfills you is also a way to “buy happiness”. You gave away the extra earnings to be happy instead.

A lot of people whose motto is “money can’t buy happiness” are actually buying happiness with their money constantly.

loading....

Dave

A couple money myths that bug me: First, when someone says something like, “Oh, I eat at nice places because I can deduct the expense on my taxes.” Um, yeah, but you still have to pay for the food, it’s not FREE.

The other one that annoys me is when someone pokes fun at me for paying down my mortgage. Their point usually is that I’m losing a big tax deduction (the interest) by paying it off. Does it make sense to pay thousands of dollars in interest to recoup a tax deduction that you might qualify for if you itemize your deductions? I’ll be quite happy to no longer pay a mortgage and take the standard deduction.

I second Ely (#55)’s comment – it really bugs me when advice comes down squarely on having to run your own business to be a real success. No, thanks. I’ll take all that energy I don’t have to expend and call it a win.

I moved to Portland in 1996 just before real estate got huge (houses tripled in my ten-year stay there). It was so hard not to try to jump on the housing bandwagon, when absolutely everyone was saying that prices were only ever going to skyrocket, and that if I didn’t buy now, I’d never get in! I could buy something now and buy something better later! But no matter how I crunched the numbers, I didn’t see how I could possibly afford to buy, and I couldn’t see how it would benefit me in the long run.

So for me, knowing my comfort level with financial commitments has been HUGE. Just because someone will let me buy something doesn’t mean I can afford it!

loading....

Neel Kumar

Finally! Someone said it clearly that there is difference between expenses. My father used to say this all the time – there are capital expenses and there are current expenses. Don’t conflate the two. One is for putting food in your stomach today (current expenses) and the other is to build a house that would last generations (capital expenses). Borrowing to cover the latter can make sense, borrowing to do the former is simply financial suicide.

Conventional wisdom is there for people who cannot (or would not) think. Usually it is generally right. But then, as the world changes, the underlying basis changes and pretty soon conventional wisdom becomes more harmful than good. That is when people get bitten.

Thanks, as always, for a wonderful post.

loading....

Four Pillars

The other thing with “studies” is that when they do exist you need to look at who did/sponsored the study. That can often have an impact on the findings.

As far as the idea that people with credit cards spend more than those who don’t…

If I can speculate a little…

I can see how people who don’t have any extra spending money might spend more because of credit cards because

a) It makes a big difference to them.
b) They might need to for basics.

I don’t believe having a credit card will change the spending habits of someone who is in decent financial shape.

In my case I use my credit card a lot but I have the cash – I just use the CC for convenience. I’m positive that I don’t spend more because I own a credit card.

loading....

Rob Bennett

So why do Dave Ramsey and a host of others cite it? Who knows?

This post is awesome. This is why your blog is so popular, J.D. You don’t just repeat what everybody else is saying. You check things out. And when you learn something important, you share. That is no small thing. That is a huge thing.

The answer to the question asked in the quoted words above is: “Marketing.” People have things they want to argue and they know of stories that help make the point and so they tell those stories over and over again without bothering to check them out.

It’s not that these people are bad. They want to help others with their advice. But they are sloppy, they are indifferent to the truth. And that sloppiness and indifference often really does in the long run hurt people in very serous ways.

You were put on earth to challenge people in this field to bring it up a notch. That’s one of those dramatic proclamations for which I have become somewhat famous. But I say it because I believe it. You have a calling, J.D. This blog entry is a blog entry that is going to make a difference in lots of people’s lives. It gets at something real.

I wrote not long ago about the necessity of fact-checking because the general media cherry-pick studies for an eye-catching title or lead, leaving out context, study specifics, and alternative views. And then of course there’s all the absolute nonsense that gets passed around on email and blogs.
🙂

It pays to be a critical reader – by which I mean not criticizing what you read, but thinking critically about it. Thinking it through, looking at the source & context & quotes, and – when applicable – fact checking.

It’s too bad there isn’t a WebMD for money!

loading....

Ross Williams

“If someone has ‘a lot’ of money, it couldn’t be because they worked hard to get it. It must be because they lucked into it.”

The simple truth is that how “hard” someone works has little to do with how much money they make. Being born in the United States or some other country is a lot more important. So is the education you are offered, the talents you have and the parents/family/community you were born into. Those are all a result of luck, not “hard work”.

So this isn’t a myth, its an obvious truth and the denial of the obvious is ideological. If you want to debunk “myths”, you need to provide some evidence to the contrary.

In fact, they biggest myth for anyone in the United States is “This is my money, I earned it.” The truth is we inherited the richest country on earth with the greatest opportunities anywhere. We didn’t “earn” 90% of what we have, it was our birthright. And it was given to us as a result of the investments and sacrifices of our parents and others who thought as much about our future as they did about their immediate “happiness”.

loading....

J.D. Roth

@DC (#57)
I was going to pull out my copy of Happiness to cite the statistics used by the Dieners, but it’s not here at the office. It’s down at the house.

Do you know them well enough to urge them to come comment on this? I’d love to have an actual expert weight in. 🙂

That said, I absolutely agree with the bulk of your comment. What you say matches my own research. (And is basically what I write about in the book.) As I always say, it’s more important to be happy than to be rich. But now I add a caveat that money does have an impact on happiness. (It’s not as powerful as the things you mention.)

loading....

DC Portland

JD, I beg to differ with you. I know the Dieners personally, and have studied happiness research extensively. It turns out that “life satisfaction” and money are significantly positively correlated. However, “happiness” and money are not (beyond the basic necessities of food, clothing, and shelter). Further, the jury is still way out on this research – confounding data multiply monthly. The message I pull from the research thus far is that our cognitive perspective (mostly measured by our subjective view of life satisfaction) is associated with how much money we have. This is true, perhaps, mostly because of the social comparisons we make. On the other hand, the strongly emotional connection we have with the construct of happiness makes it less correlated with material wealth. Our happiness, as measured subjectively, is impacted much more by our intimate relationships, our baseline level of optimism/pessimism, and our inherent level of resilience.

loading....

Ely

@ Tyler – that’s why we love JD. 😀

loading....

Ely

Awesome post, awesome comments! Great stuff everybody!

The one that bugs me is the idea that you have to follow your passion and be your own boss, doing what you love. It’s a nice idea but it’s not for everyone. Some of us are more cut out to be employees; regular pay and regular hours allow us to pursue non-remunerative hobbies we love and spend time with our families. I don’t have a passion, and I don’t want one, and I DEFINITELY don’t want to be my own boss!!! Let someone else have the stress and make the tough decisions; I will take care of being the best employee there is so the best bosses will want to hire me. 🙂

loading....

sashie

Adam(#48)

Did you also see that it is a theory that has been proven, just not by the “phantom study” Dave Ramsey referred to. Most people do spend more on credit cards than they do paying cash.

Also, someone tried to use the rationale that of course they spend more with credit than with cash because with large purchases they always use their credit card. But that theory has been debunked through the studies done on cash/credit use…please read some of the studies done about how/why people spend before trying to defend a particular method.

Dan Ariely has done some amazing work on studying people’s spending habits, so has William Poundstone in his new book, “Priceless: The Myth of Fair Value and How to Take Advantage of it”. There is a ton of research out there on these topics, it difficult part is realizing that you should look for it before thinking it can’t exist.

loading....

Andrew

HI JD,
Yet again another interesting read. With regards to Dave Ramsey, I thought he was talking about the difference between using cash and cards generally. I could be mistaken, but that was my impression from his often cited D&B report blurb.

Keep up the good work,
Andrew

loading....

DanT

It’s not just money myths. Consider it whenever you read a statistic. It’s amazing how many times the media will report some statistic, but if you go look up the actual report, it’s significantly different or even entirely opposite! For example, the media may say “FBI Reports Crime is Down” but if you look at the actual report, it says that crime is actually up but just not as fast as it went up last year. (I don’t know what the FBI has reported recently – that’s just an example.)

loading....

J.D. Roth

Tyler, great comment. I’ll see if I can do a follow-up post to address some of your points.

Everyone, please note that it was Nicole (#47) and her colleague Wendi who did all of the legwork on the Ramsey thing. I’m just reporting it. I had noticed that there was no D&B study to be found (and so couldn’t quote it in my book), but I didn’t actually take the initiative to figure out what was going on. That’s all Nicole.

loading....

Frankerson P

Great post!

I deeply regret buying a house six years ago. Of course, at the time, it was a ‘no-brainer’ because real estate is such an AMAZING investment.

It caused some serious financial advantage, but at least I’ve learned to question these common financial myths and I should be better off in the future.

loading....

Tyler Karaszewski

I’m quoting a friend of mine, from a conversation I was having on Facebook about people approaching 30 and still being in college. This is my friend:

“I’m bitter about the lack of degree requirement in a lot of jobs that I am skilled at. If my experience is the main focus for employment as it has seemed to be, I would have gladly dropped the $30k debt and just worked. In a way, my going to University felt like I was appeasing my parents a lot and their need to brag about having a kid in University.”

I’m acquainted with another person who went to college, got a degree in Business Administration or some other super general field (I can’t remember the exact degree title, but something like that) and found it so un-marketable that he resorted to selling marijuana to pay off his student loans, which is exactly what they tell you you’re going to college to avoid (how many anecdotes have you heard about the little minority kid who grew up in the ghetto but somehow managed to go to college so he wouldn’t end up selling drugs like his older brother?).

I think it’s a myth that going to college is *always* a good idea regardless of the major you choose or the amount you spend on your degree.

Also, I’m glad you did the research to point out Dave Ramsey’s error — I think it’s fun when these sorts of things are pointed out. But, for the rest of us, who aren’t doing research for a book we’re writing, and are just trying to find time to *read* the original book in the first place, this is a huge burden. I could easily read a book that cites 25 references, it’d probably take me days just to track them all down, let alone find the relevant passages cited and authenticate them, and then they very well may just refer to different works.

As a consumer of information, I have no practical choice but to rely on the authors of that material to do a decent job, because I don’t have the time or energy to verify that all the studies cited in everything I read were carried out in a scientifically rigorous manner.

What can you really expect someone to do here (besides discount Dave Ramsey entirely in the future as being unreliable)?

Finally, I find that the veracity of these myths becomes less relevant as you opt out of more and more optional things. Do people spend more when using credit cards? It’s irrelevant if you don’t use credit cards. If you’re not testing the myths, it doesn’t personally make a difference to you whether or not they’re true. Simplicity gets you out of having to read as many studies to try and figure out what’s going on.

loading....

Adam

Wow, great find on Dave Ramsey’s “people spend more with credit”. That should be a topic on bad money advice too…think I might send ole Frank C an email asking him to expose that in detail!

Its one of those things that sounds true and you believe it, but would be hard to do an actual study on it.

loading....

Nicole

I also LOVE Dave Ramsey. There are a lot more studies for him to cite now on the issue of credit card spending than there were back when he first wrote Financial Peace University.

My other recent favorite for conceived wisdom is that it takes 21 days to make/break a habit. Apparently that one comes from a book on how long it takes for a new amputee to lose the phantom limb, on average. Actual habits take different amounts of time depending on the habit (which makes sense… it’s easier to drink a glass of water every morning by habit than it is to do a perfect triple axle by habit).

Thanks for the compliment, guinness416. 🙂

loading....

guinness416

Really good post JD! I always enjoy Nicole’s great comments so I’m glad to hear she’s being doing some work for you. (Jim from Free by 50 is similarly reality based in many comments threads).

Also, on your readers’ myths – I didn’t see your original tweets but the “do what you love and the money will follow” and the Claire’s education one are really, really good examples and are all over money blogs.

loading....

Budgeting in the Fun Stuff

I remember that my husband and I both agreed that money could buy happiness on one of our dates when we first met and started laughing since we were the only 2 people we knew at the time who agreed on that.

Without money, you can’t afford security (a home, food, etc). With money, you can afford the basics, to save for your future, and to do fun stuff in between.

It also seems to make sense that at some point, more money will not create that much more happiness. My husband and I would love to have a few million dollars right now so we could “retire” from the jobs we don’t appreciate and pursue whatever we want off the interest of our money, but we are happy now as well.

We can afford the basics, the fun stuff, and early retirement on about $80k a year before taxes…we are content. Double the money would lead to more time, which is great, but unlikely to actually double our happiness.

loading....

jeffeb3

I would argue that these examples show why not to think for yourself. Those myths are easy to believe if you just think about them. The right thing to do is to trust the scientific method, and if you don’t want to do the work (and who does) then you should find people who are using the scientific method to sustain/refute these claims. Science isn’t just for molecules and planets, it’s useful for finding truth in anything.

That being said, I am absolutely the worst at this. I come to conclusions in my head without ever testing them, because it’s hard to know when you are wrong. I’m wrong a lot.

loading....

Nancy L.

@CERB (#37) Thanks for pointing that out! I feel like a lot of people are still believing in car market “truths” that were true maybe up until the early 80s, but are not nearly as true today. My last car I purchased at the end of a model year, and it was $2000 cheaper than the 1-2 year old used cars of the same model. All that and I got to enjoy the full warranty as well! Perhaps I would have saved more on the used model if I could have found a private seller trying to sell the same car, but the reality is that the majority of cars reentering the market after only 1-2 years of use are coming off leases, so they tend to end up at dealers.

Apparently, just touching money made people feel better! How’s that for backing up the “myth” that money makes you happy.

loading....

Kevin

@CB:

“If you don’t find Ramsey a credible source why would you find JD a credible source?”

I can’t speak for Josh, but personally, the difference is humility. JD openly admits when a topic is veering into an area of which he has little understanding, and readly concedes when his information might be incorrect or incomplete. I can’t recall ever really catching JD stating things that are verifiably untrue, and ignoring corrections from his readers/listeners.

Dave Ramsey, on the other hand, frequently states things that are clearly incorrect, yet he repeats them over and over, maintaining a willful ignorance of the truth. Specifically, I’m talking about his investment advice. He frequently claims that you can expect to earn 12% on your money reliably and indefinitely. This myth has been systematically disproven by multiple credible industry experts like Peter Lynch, Warren Buffet, and many others. It also completely ignores the impact of fees and taxes on investment returns. Yet Dave keeps saying it.

That’s enough to give JD more credit than Dave Ramsey, in my opinion.

loading....

Brent

Thanks. I loved this post.
I’d like to add a couple
1. Education is always a good investment.
2. Anyone can start their own business and be their own boss.
3. The only thing of value in a crisis is gold.
Many hold to generalizations because some simple rules like “earn more than you spend” always work. Not all of em do, evaluate your life’s rules and fit them accordingly.

loading....

Zoom

The myth that in leveraging a sale “I saved X% or $X” – I would go a step further and say that a sale could a single justification to buy something you don’t need. I hear “yeah, but I got it on sale” all the time from many different people. It’s powerful.

As far as the Biblical reference, “the love of money is the root of all evil.”…perhaps if it read “*blind* love of money *can* be *a* root of evil”…

loading....

CERB

Great post. I don’t think that money can “buy” happiness, but a lack of money sure can make one miserable. #5 Cara – I totally agree with your comment. #16 E – The book “Your Money Or Your Life” covers the concept of diminishing return on your happiness.

One of my pet peeves of financial statements is that you should never buy a new car, because “the second you drive it off the lot it depreciates several thousand dollars”. Well, that would be an issue if you needed to sell it the second you drove it off the lot. I’ve never seen a car that’s been driven 10 miles and had $5,000 knocked off the price. It just seems like a strange rationale.

loading....

Kent K

JD for me one of the biggest myths is that a college education will lead to higher income. While the odds are in your favor if your looking for a regular 9-5 job, I know several people who never went to college that make far more money than I do. I think it’s more about how you apply your knowledge to your specific occupation that determines your success, and you don’t need a college education for that. In realistic terms, those that have specific knowledge in a field where the demand for the skill is higher than the supply of knowledge (workers) will make more money. That’s why I think that if you plan on going into a very general field where the supply is high, you are best served by going the cheapest route it takes to get there. In most cases, a degree is a degree, unless you went to Harvard, Yate, etc., and if that’s the case, you probably are not applying for the jobs the rest of us are. I just can’t comprehend spending $50-$75K on a education to be in a field where the supply is high and my income potential is limited by that supply.

loading....

Kevin M

You forgot the biggest myth of all – that going to college to get a degree with guarantee you a job and the American Dream^(TM).

Another pet peeve of mine is when people say they don’t want to make more money because they’ll be in a higher tax bracket – as if all their additional money, plus extra will be used to pay taxes. Scary.

loading....

ami | 40daystochange

JD: I’m impressed with your willingness to dig until you found the truth.

Bottom line for me: we each have to dig to find what’s ‘true’ for ourselves. What’s true for us may or may not be true for our neighbors.

loading....

TosaJen

I appreciate your persistence, JD. Yay for facts and research. There’s more than enough truthiness out there.

loading....

Rachel B

Great article, JD! I second @crunchysue’s comment about how salaries don’t always increase over time. Salaries get frozen. People need to take time off because of illness or family circumstances. Most people change jobs and careers several times in their lives and those transitions don’t always come with a salary increases.

I’ve seen a lot of my friends buy condos and homes that are beyond their means, because they believe that way more money will be coming in within a few years. I’m much more comfortable renting what I can afford today.

loading....

Beth

@uncertain algorithm – I respectfully disagree. “Loving money” isn’t the same thing as having money (i.e. working hard for it and being prudent with it).

The U.S. economic system is a bad example. It was greed — the love of money — that was behind all those policies and deals that got us into a crisis. There are many companies that put their bottom line ahead of the safety of their customers, the welfare of their employees and the health of the planet to earn more profit.

In short, when people put their need for more money ahead of the needs and welfare of others (not to mention ahead of their morals), then yes, I do believe the LOVE OF MONEY is the root of some evil (though perhaps not all).

J.D., that reminds me… What bugs me is the saying that “It’s not personal, it’s just business”. To me it always felt like an empty justification for hurting someone.

loading....

CB

@josh: From your comment you don’t find Ramsey to be a credible source of information. Yet, you are reading a blog by someone who has a similar story. Not the multi-million real estate portfolio, but JD went through a similar process of getting into debt then working his way out. If you don’t find Ramsey a credible source why would you find JD a credible source?

Also, for the record, on the whole I’ve enjoyed TMM and found a lot of what Ramsey says to be useful. I’ve just adapted his way to what works for me. (Not entirely sure why I feel I have to defend myself in this forum either but that’s probably another psycological issue from which some other money principle/money myth could be derived.)

loading....

Jessica

@uncertain algorithm #17: “For one, please tell me how the U.S. economic system mirrors the Roman economic system in terms of wealth and money (newsflash: the hardest workers in Rome, the slaves, could never be wealthy).”

Sticking with the theme here, that’s actually completely untrue. There are lots of examples of ex-slaves becoming very wealthy, and you can read a satire on it in the story “Cena Trimalchionis.”

loading....

Pattie

Great post…and I, too, take issue with Claire’s statement. Her personal story is just that, her anectodal experience. (Right in the same ball park as “My grandfather smoked three packs a day and lived to be 103 without ever getting lung cancer.”) Just as the latter doesn’t change the FACT that MOST smokers WILL get lung disease, Claire’s statement doesn’t change the reality that MOST people who pay for for things themselves tend to value the service or product more.

And great reporting on the non-existant Dave Ramsey “report”. I like the guy for the most part, and he helps a bunch of folks. He is not, however, the final authority on all things financial. As with most info I find, I have taken what “works” and set the rest to the side.

loading....

Erica Douglass

“Families should do the same. They should borrow to buy a house to live in, a washer and dryer to keep house more efficiently, a car for transportation to work, a college education for the kids.”

Doh. It’s crazy that Ramsey cites this. Hopefully he sees this article and updates his thesis!

I think, if you don’t already have a washer/dryer, car, or college education, it may make sense to finance them. But if you already have them, it doesn’t really make sense to finance new ones (or more education.)

Richard and I were talking last night about college. He’s 29; I’m 28, and we can’t believe the number of people our age who are still in college. They’re going back for second, third, fourth degrees. They’re basically unemployable–overeducated with 0 work experience. Our society hasn’t set up our generation well. We’ve been told to go to school and then a job will be bestowed upon us when we graduate. When that doesn’t happen, we default to…more school! I don’t think this does our overall society any good. By the time these folks get out of school, they have more than a house worth of debt. Stop the madness.

-Erica

loading....

Norman

Conventional wisdom says that carrying a mortgage is good so you can get the tax deduction and pay back with cheaper dollars through inflation. That has never made sense for me personally. A mortgage has led a lot of people into financial trouble. You spend so much more money on the interest than you get for a deduction. I’m not commenting to debate the pros and cons of having a mortgage, its just something that for myself, I’ve chosen to pay my mortgage off as quickly as possible so I don’t have years of interest charges. It also will provide me with the financial security of not having a house payment in retirement.

loading....

Devbeth

I work at a large department store. They have their own credit card. They quote studies that show people using a store card spend 30% more than people who don’t. The solicitation you get at the checkout “May I put this on your *** account?” is for a reason!

loading....

Bill

OK, slightly off-topic, but a near-half century spent as a writer and editor forces me to jump on this sentence: ‘On principal, though, they should never borrow to pay for living expenses.’

We know the writer meant ‘principle.’

Otherwise, a great post, as always.

loading....

J.D. Roth

Just to make it clear: I’m not dissing Dave Ramsey. IN GENERAL, I think he’s great. (Some of his faith-based policies irk me, but that’s a side issue.) His advice was pivotal in my financial turnaround. I’m just using this one thing as an example because it’s convenient to do so. I could have really laid into Robert Kiyosaki, whose bad advice probably played a role in the housing bubble. There’s a reason I don’t write much about Kiyosaki around here…

loading....

Erin

I can totally support the idea that you spend more when you use credit. I DO IT!!! That’s why I don’t use credit cards anymore. Well, that and I hate debt. LOL

I’m very bad about saying, go ahead and pick this and that up since I’m “putting it on the card anyway.” I’d guess that I double what I would have spent when I use the CC.

But yes, I agree, you shouldn’t just take quotes and studies and statistics as ‘word’.

But I must defend my man Dave Ramsey. 🙂 He may not be the go-to for everything or everyone…but his books have changed my life!! He helped me change my mindset!!! I have more money saved that ever in my life!! I’m not worried about the unexpected emergency anymore, because I can actually take care of it (like when my car broke down a couple wks ago…I didn’t panic about the cost, I knew I could cover it.) His words of wisdom have helped me push myself to save more than I use to think I could. I can look at my future and see retirement and financial contentment! I don’t use all his methods, but he inspired to take control of my finances…and that makes me a huge fan of his. 🙂

loading....

Rick Francis

If you believe your money is evil- I would be willing to take that burden from you. How about some on investing? One myth that really bus me: It is easy to pick superior stocks by “doing your homework”. Mutual fund companies have huge research departments and the majority of them do NOT beat the market averages. If it was easy to beat the market with research the funds with the largest research departments would always beat the market!

-Rick Francis

loading....

Mendy

Many thoughts came through as I read this post.

#1 Happiness is relative. Even if it has been quantified in some way in scientific studies. Happiness in America is not the same as Happiness in Africa or anywhere else. It is very culturally based.

#2 JD is citing merely one of Dave Ramsey’s teaching points as being not easily verified, however later in the post he verifies it is true with multiple references. I don’t think he is trying to discredit him in anyway, because he has over and over again told us to read his books on this blog. (Also read some cynical comments, when basically anyone can find research to give credence to their point if they look hard enough. It’s what research is about, explaining all sides).

#3 Doing the work to find out why we believe and act the way we do is a difficult process. It’s human nature to believe those we trust, and read their books, and blogs, and take their advice.

#4 The basic premise of this post holds true. To truly know,understand, and do something yourself and for yourself is the only way to go. It’s common sense. Blind beliefs are dangerous.

#5 I believe J.D. Roth and Dave Ramsey (of whom I have never met personally) both have the heart of a teacher. They are looking to educate their listeners/readers because they care.

loading....

Nancy L.

Sheesh JD! So many things to want to comment on! 🙂 Thanks for another awesome post!

I feel compelled to point out a fallacy in Claire’s logic about why she feels that the homily “You’ll value it more if you pay for it yourself” is false. Her logic is that bc she values her experience in equal value to her classmates, there is no truth to the statement. However, following the statement itself, the comparison isn’t supposed to be made between her and her classmates, but rather internally within herself. Right now, because she’s only experienced one side of the coin, she cannot tell for sure if she might have felt even stronger about her experience if she’d paid for it herself.

I can tell you that when I was a teenager, my parents paid for me to have braces. At the time, I would have told you that I appreciated it greatly, but a few months after the braces were removed, I allowed myself to slack off on wearing the retainer. Over time, my teeth slipped into worse alignment than they’d originally been in. As an adult, now paying for a second round of braces myself, I found that I was motivated to be a model patient. I did every single thing they recommended–I still wear the retainer nightly, four years after my braces were removed. I definitely took it a lot more seriously once I was paying for it, lol!

loading....

Katy

I loved this post so much I had to comment. Fight the good fight, J.D.! Give that hearsay the old one-two.

I’ve been very put-off by a lot of “financial gurus” because they strike me as being more like cheerleaders than experts. Not to underplay their role – motivation is important, too. But you can’t be self-sufficient without a critical eye.

loading....

Kat

Of course I spend more with credit cards: if something is $5 I’ll use the cash I have in my pocket, but if I am buying a $500 item, I don’t want to carry $500 in cash with me, and I want the protection that credit cards have, and points/miles. That doesn’t necessarily mean that I am overspending or “spending more” than if I didn’t have the credit card, if this is a planned purchase that I am paying off that same month.

Agree that the Bible verse is about all “kinds” of evil, not all evil. Lots of evils are based in things other than loving money, and money itself is not evil.

loading....

uncertain algorithm

Many people here seem to misunderstand the Biblical idiom, “the love of money is the root of all evil.” For one, please tell me how the U.S. economic system mirrors the Roman economic system in terms of wealth and money (newsflash: the hardest workers in Rome, the slaves, could never be wealthy). In the United States, the average millionaire works at least forty five to seventy hours a week – we’re not talking the lazy rich like the Roman times (think of individuals like Catullus).

Or, I’ll put it another way: find one passage in the Bible that denigrates hard work. Yet in the U.S. economic system we pay people usually in salaries (annual), hourly, or performance. All of these consume either time or effort – not a lazy rich system at all.

And there are just as many passages in the Bible that praise wealth (all throughout Proverbs) as a sign of hard work and self-discipline.

Therefore the love of money is only a root of evil if it is not well deserved. Otherwise, loving money in our system is loving your work (and I’d say respect of your work is more valuable anyway).

loading....

E

@Ingrid – the reason you need at least some sort of emergency fund before you pay off debt is because if you have an emergency and you don’t have an emergency fund, you will have to borrow MORE money to cover it, thus increasing your debt and continuing the vicious cycle.

I remember reading about research that said that once you hit a certain point where you can meet all your basic needs, adding more money has a diminishing return on your happiness. I can’t find an official citation so maybe I am mistaken but it certainly makes sense. Going from under the poverty line to an average middle-class income – say hypothetically $25k to $50k – would probably mean a huge jump in happiness because you could stop worrying about having enough money for food and shelter and so on. Taking a middle-class income and adding another $25k to your salary would be nice but the average person would probably just buy a new car or more stuff and it may add to their happiness a little but not as much as the earlier jump did.

loading....

Four Pillars

Great article.

I honestly don’t know why people think of people like Ramsey/Kiyosaki etc as “gurus” – Ramsey has been bankrupt and just makes up stuff to support his argument (and make lots of $$).

As for money myths – I just don’t believe anything I hear anymore. 🙂

loading....

Bartosz

@Ingrid #4: I think you make an important point re: emergency fund vs. high interest debt and it makes sense from the financial standpoint. But an emergency fund has also a psychological effect — having as little as $500 set aside for “emergencies” can give you a peace of mind needed to focus on paying off the debt.

loading....

MK

Regarding whether you spend more with cash or credit, retail organizations certainly think you do. I worked for big box retail and they spent a lot of time and talent pushing credit cards. Their point of sale data showed that the average transaction with cash was about $10 and with the store credit card was more like $300. Having said that, I don’t have specific number because it was proprietary data (it’s also several years old) – however, retail is tracking this, and the pushing of credit bears out that THEY think you’ll spend more with their card. Maybe the reason we can’t get the specifics is that the best research for this would be internal numbers from retail and it’s not in their best interest to share.

loading....

Beth

I totally agree with @chicagoelevated! I think it’s a fallacy to assume that everyone can earn lots of money doing what they love — if they can figure out what it is in the first place. I’d wager that most people earn a decent living doing jobs they like, but aren’t in love with.

loading....

Lizbeeth

I believe money does buy happiness. I rarely find miserable people at the country club, but often see them at Wal-Mart. Money by itself won’t make you happy, but it certainly affords you more opportunity and choice in life. It gives you the ability to do things that make you happy. Excellent article.

loading....

Hannah

The money myth I hate most, without question, is “There’s no point in making more money because it will put you in a higher tax bracket and you will end up making less.”

loading....

Russell

This is especially true since (to my understanding; you should verify for yourself!) the tax brackets are incremental. For a single filer in 2011, you pay 10% on the first $8500, 15% on the next $26k, and so on. So if you move up a tax bracket, you only pay the higher rate on the income in excess of the bracket floor.

Moneychimp.com has some great tax calculators, but again, these can have bugs so you should double check their information.

loading....

Lara

The love of money quote may be actually even less definite than Cindy (#7) stated. It varies by translation, but I’m told that closest approximation to the original Greek is “For the love of money is *a* root of all kinds of evil.”

loading....

josh

Question everything Dave Ramsey says, he is in no way shape or form a creditable source. His only real financial background is the fact that he drove his finances into the ground before starting to make money off of people who knew less than he did on the subject.

loading....

Cindy

You said “They pointed out that it’s the love of money that’s considered the root of all evil.”

It’s even less definite than that! Most translations say something like “Love of money is the root of all *kinds* of evil.”

I think we can all point to an example of evil that has nothing at all do with money, so it’s nice to know the Bible doesn’t contain such a blatant fallacy, huh?

loading....

Russ

An established ‘truth’ I dislike is “experiences are worth more than products”. I find that this is often untrue, and you can’t control which experiences remain memorable. I can barely remember most of the vacations I’ve ever taken, including an expensive trip to Barbados with lots of planned excursions about 7 years ago. If a genie appeared right now and offered to exchange my memories for the money I paid to obtain them, I’d agree like a shot. On the other hand, I still remember some of the toys I had as a child, decades ago.

loading....

Cara

JD, this post is an example of why I check out your blog every day. You really did your homework! I’m personally tired of the “money can’t buy happiness” myth. In my own experience, money can buy all sorts of things that are conducive to happiness. With money, things like a busted hot water heater or a health emergency are mere inconveniences rather than disasters. It buys comfort, options, peace of mind, and experiences. I find it more pleasurable and satisfying to be frugal by choice instead of by necessity. I can’t remember who said it, but I agree with the quote “I’ve been rich and I’ve been poor. Rich is better.”

loading....

Ingrid

Yes, I have seen many times how a certain phrase or number is taken for truth when its source is clouded in mystery, and is, at best, an exaggerated estimate – it certainly applies to several social causes I am involved in. Can be really misleading and even damaging.

My family comes from the former Soviet Union and I have seen with my own eyes how much the convenience of Western appliances changes a lifestyle, freeing time and energy for other things. You certainly need money for that.

As for questioning the established truths:
To me, the idea of establishing an emergency fund before you paid down a high interest debt is ridiculous. Emergency is a possibility. The high interest on the debt is certainty. While you are building that fund for something that may not happen, your debt is increasing.

Of course, this thinking is only valid if you could borrow the expected amount at the same or lower rate should an emergency happen – if you can’t, then I fully agree with the need to establish an emergency fund first.

loading....

Mrs. Money

Wow, you really did a lot of research, JD! I know sometimes when I spend money I feel happier. Nothing wrong with that, right?!

loading....

CB

I really enjoyed this post. The Dave Ramsey one is kinda interesting to me since I’ve started going through parts of his Total Money Makeover. Actually, there are a few things that, while I see his point, I probably won’t do at least not yet.
This concept really should be applied to everything you hear, especially regarding anything that is based on a statistic. Statistics, like money, are not inherently good or bad. But a study that is poorly set up or samples that are poorly chosen, can skew the data one way or the other, or (maybe more often) skew the data in the direction that favors the group who’s paying for the study. (That’s not being overly cynical is it?)
You will, likely, never get a purely unbiased, objective reporting of facts. But if you dig a little and ask the right questions, you can usually find something close to the truth.

loading....

SF_UK

The whole “real estate is an investment” thing gets me. I may buy a house/flat soon. But you know what? I’ll be buying it for what is, when you come down to it, its primary purpose. Because, and I know this may sound radical, I plan to live in it.
This brings me on to the concept of “negative equity”. Sure, it sucks that you may owe more than your house is worth *right now*. But unless you are actually planning to move or sell today, or you can’t make your repayments, it’s meaningless.
Houses are for living in. If, when it comes to selling time, you’ve made a profit, all well and good. But that is *not* the primary purpose of a home.

Advertiser Disclosure:
Many of the savings offers appearing on this site are from advertisers from which this website receives compensation for being listed here.
This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). These offers do not represent all deposit accounts available.
Editorial Disclosure: This content is not provided or commissioned by the bank advertiser.
Opinions expressed here are author’s alone, not those of the bank advertiser, and have not been reviewed, approved or otherwise endorsed by the bank advertiser. This site may be compensated through the bank advertiser Affiliate Program.
UGC Disclosure: These responses are not provided or commissioned by the bank advertiser.
Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser's responsibility to ensure all posts and/or questions are answered.

Disclaimer: Rates / APY terms above are current as of the date indicated. These quotes are
from banks, credit unions and thrifts, some of which have paid for a link to
their website. Bank, thrift and credit union deposits are insured by the FDIC
or NCUA. Contact the bank for the terms and conditions that may apply to you.
Rates are subject to change without notice and may not be the same at all
branches.

Disclaimer:All information provided on this site is for informational purposes only. GetRichSlowly.org makes no representations as to the accuracy, completeness, suitability or validity of any information on this site and will not be liable for any errors or omissions in this information or any damages arising from its display or use.